(click to enlarge)Research In Motion Stock Price

In addition, this $12.50 support level were tested on two prior occasions, first on Dec 20th 2011 following Q3 earnings, and then in after hours on March 29th following 2012 Q4 earnings.

With a firm and established support @ $12.50, I believe now it is time to take another look at the fallen giant. Many people consider RIM a binary event, if BB10 is blockbuster, sky's limit for RIM, if BB10 flops, investors will lose everything.

So let us look ahead 2 years and picture the worst case scenario. RIM's BB10 was not well received by the market, management tried to turn the ship around by investing heavily in failed R&D projects, negative cash flow, no cash reserves, mountains of debt. What would be a good price for RIM now?
From the Q4 earnings call Q&A session, the new management is hinting at a possible sale of the company if BB10 fails. RIM will still be an attractive buy out target given its patent portfolio, network infrastructures, and software services. So I assume that investors can recover at least $6 / share from a buy out offer. This would result in a direct loss of $6.5 / share. In addition, assume you can generate 10% annually for 2 years in some other investments, there would be an additional $2.73 in opportunity cost, which brings total loss to $9.23 / share.

Now let us consider the upside to Research in Motion. Assume RIM's current US marketshare stabilizes @ 6% following the release of BB10, gains more traction in the enterprise and government sector. It is reasonable to assume that RIM will earn at least $3 / share annually. Considering the high volatility in the tech sector, assigning a conservative P/E ratio of 10, and we end up with $30 / share. This would result in a total gain of $17.5 / share.

So we are basically risking $1 (if BB10 flops) for a potential pay off of $2 (if BB10 succeeds). Right now RIM remains very speculative and I would be foolish to bet the farm on the BB10, however a small long position may prove to be very rewarding at current valuations.

P.S.
In my honest opinion, it is very likely that Apple will lose its status symbol, Android will slow down in growth, and RIM will hang on to its current followings. Eventually, the difference between an Iphone, an Android, and a Blackberry will be smaller and smaller (heck, they already are, I can make a phone call, send texts, play games, and surf the web on all 3 of them).

Warren Buffett said

"In the short term the market is a popularity contest; in the long term it is a weighing machine."

The same applies for tech gadgets. Despite what everyone thinks, battery life, data usage, and physical keyboard matters. After everyone stops playing Angry Birds on their cell phone, may the best phone win.

Disclosure: I am long RIMM.

Additional disclosure: Long RIM.TO at 14.3. University of Waterloo student.

After disappointing 2012 Q4 earnings, RIM share price plunged 10% before immediately bouncing back to -2%. This recent price action lead me to believe that RIM has finally reached a bottom. The sharp bounce off the 12.50 mark on a 1.4M shares traded indicates a large buyer at that level. This buyer may have also supported RIM 2 days after 2012 Q3 earnings, RIM rallied from 12.52 to 13.78 on 4x average volume (80M shares traded). I do not anticipate this level of support to be broken anytime soon. With -0.25 EPS and 0.8 adjusted EPS reported in Q4, this is about as ugly as it will get.

There are many problems surrounding RIM, the highlights are:
1. Its not only a broken stock, its a broken company
2. No innovation, losing market share, not competitive
3. Like many techs, it will go the way of Palm
4. Stupid management

I agree that right now RIM is a broken company, but like great companies with insane valuations, there's also broken companies with insane valuations, and I think RIM is one of them. Here's some of RIM's upside:
1. Below book value, trade at large discount to past earnings (yes I agree if they only make $1 next year, the stock trades at normal P/E ratio)
2. BB10, significant upside even if RIM just stay relevant
3. Partnerships / M&A are now part of the "strategic review".

Assume that $12.50 is a solid support level, and any news that hint at RIM's relevancy will push RIM above its currently depressed valuations, as well as the reward/risk ratio for large short sellers is diminished at current valuations,
here's the trade that I would make if I had more money:
sell cash secured Dec 2012 puts at 13 strike, so we get paid to wait until the stock pull back closer to the support level, the run up on Friday March 30 may very likely be a short squeeze.
However if there is a sustained rally above $14.50 and the puts were not exercised, which indicates the stock entered a new trading range, I would buy back the puts previously sold for a lower price and initiate a long position via Dec 2012 OTM or ITM calls (if you are really bullish) or via direct purchase of stocks.
Of course this is not a recommendation to buy or sell, I am not a registered investment advisor and everyone should conduct their own due dillegence before investing.

Disclosure: I am long RIMM.